Hawaiian Electric Industries Earnings: American’s Deposit Base Stable Amid Banking Crisis

We are maintaining our $39 fair value estimate and narrow moat rating for Hawaiian Electric Industries HE after the company reported first-quarter earnings per share of $0.50 compared with $0.63 in the year-ago period. Management reaffirmed its full-year EPS guidance of $2.15-$2.35, consistent with our expectations.

Much of investors’ focus has been on Hawaiian Electric’s bank subsidiary, American Savings Bank, since the banking crisis in March. Total deposits were up 0.75% from year-end 2022, a sign that American’s deposit base has remained relatively stable. The bank’s percentage of insured deposits remains high relative to its state peers at 86% of total retail deposits. The company said it has access to $3 billion in total liquidity, or roughly 3 times the amount of its uninsured deposits.

Earnings at the bank were $18.6 million, down from $23.9 million in the year-ago period. The decline was attributed mostly to higher noninterest expense and a decrease in provisions for credit losses booked last year. The unit’s income was up from $17.9 million in the fourth quarter of 2022.

Utility earnings grew slightly from the year-ago quarter to $47 million. Earnings benefited from higher revenue from the company’s annual revenue adjustment mechanisms and major project interim recovery mechanisms. These benefits were mostly offset by higher operating and interest expenses.

Earned return on equity at the utility was flat with the prior quarter and remains below peers at 8.2%. Hawaiian Electric’s utility regulation allows for significant performance adders, as well as penalties, based on numerous metrics. We expect the company to gradually improve earned returns more in line with its 9.2% allowed return.